History 101

(Originally published May 15th, 2012)

To encourage Risk Takers to Travel Halfway around the World Mercantile States granted Monopoly Charters

The modern world began because Europeans had a penchant for silk and spices. Something they enjoyed during Roman times. When the Romans ruled the world. And the Mediterranean Sea was nothing more than a Roman lake. But when the empire stopped conquering new lands and sending the spoils of war home they had to turn to other means to pay for the cost of empire. Taxes. To pay for the Roman government and their public spending. And the Roman legions. This excessive government spending led to the fall of the western half of the empire. But the eastern half lived on for another 1,000 years or so. Why? Because the capital of the Byzantine Empire was Constantinople. On the Bosporus. Trade crossroads of the world.

This city was so rich everybody wanted to conquer it. So they could have all those riches. For everything that came along the Silk Road from China crossed into Europe at the Bosporus. Soon Muslims fought Christians in the Holy lands. Then more Christians came. The Crusaders. Those who didn’t die went back to Europe with some of those Chinese luxuries. Spices. Silk. Porcelain. Etc. Sparking a renewed interest in these finer things in Europe. Especially the spices. For European cooking was horribly bland at the time. The Ottoman Turks eventually took Constantinople. Renamed it Istanbul. And controlled that lucrative trade. Making those much sought after Asian goods rather expensive in Europe. Which they had no choice but to pay. Because if you wanted those luxuries you had to go through Istanbul. Until the Portuguese sailed around Africa and found a direct route to those cherished goods, that is.

It was the Commercial Revolution. A new age of international trade. A trade even more profitable than what the Ottoman Turks controlled. Because big ocean-going vessels can carry more cargo than anything coming over land on the Silk Road. And these new European maritime powers wanted that wealth. And the power it would provide. To encourage risk takers to get into those wooden ships and travel halfway around the world they granted monopoly charters. The Dutch East India Company (VOC) was one of the largest. And one of the wealthiest. But this was not your typical company. The VOC established overseas colonies. It waged war. Established treaties. Even coined its own money. Because of this thousands of VOC ships stuffed full of valuable cargoes sailed to Antwerp and Amsterdam, making the Dutch very wealthy. And powerful.

The Tea Act allowed the Company to Ship their Tea Directly to America and exempted them from any Duties

Of course the Dutch weren’t the only ones doing this. They had competition. Portugal. Spain. France. And England. Who would bump into each other numerous times fighting for control of this trade. And those colonies. The English and the Dutch would fight 4 wars. Which is how Dutch-founded Manhattan became part of the British Empire and, subsequently, one of America’s greatest cities. The English East India Company gave the VOC a run for its money. Parliament even passed legislation to give the English a monopoly on all trade with their American colonies. The Navigation Acts. Which stated that all trade to and from America had to be on English ships. And all trade had to go through an English port. Where the ships were unloaded and the cargoes inspected. And taxed. Then they could reload their cargoes and continue on their journey. All tenets of mercantilism. This kept the lower-priced Dutch goods out of America. And prevented the Americans from selling to the Dutch directly for higher prices. So it shut down the Dutch from all American trade (except for a prosperous black market). And brought in some lucrative tax revenue for England. While extending shipping times and increasing prices for the Americans. Which they were not happy about in the least.

The English East India Company (the Company) was similar in structure to the VOC. And soon made the Indian subcontinent a wholly owned subsidiary of the Company. But it wasn’t cheap. Waging war was costly. As was managing those conquered territories (something the Romans had also learned). Then a famine in Bengal in 1770 claimed about one-third of the local population. Making laborers more scarce. And more expensive. All at a time when the sales of their imported goods were falling in Europe. There were warehouses full of unsold Chinese tea that they couldn’t sell. Making for a bad time for the Company.

Higher costs and lower sales spelled trouble. And that’s what the Company had a lot of. Trouble. So the Company turned to Parliament for help. And Parliament helped. By allowing the Company to ship their tea directly to America without having to unload it in a British port. Or pay a duty on that tea. Which would greatly reduce their costs. And allow them to sell it in America cheaper than they did before. So Parliament passed the Tea Act in 1773. Making life better for all involved. But the Tea Act left in place another tax in the previous Townshend Acts. Which was a bigger problem than getting cheaper tea (which they could get on the black market from the Dutch). These taxes on the British subjects in America were unconstitutional. Because there were no Americans sitting in Parliament. This was taxation without representation. A much bigger issue than cheap tea. So they threw that first ‘cheap’ tea into Boston Harbor. The Boston Tea Party being a major step towards war with the mother country. And American independence.

Britain became the Lone Superpower after Abandoning their Protectionist Mercantile Policies and Adopting Free Trade

The American Revolutionary War was not the only headache the British got from their mercantile policies. Part of those policies required maintaining a positive balance of trade. So there was always a net inflow of bullion into the mother country. That’s why raw materials shipped into Britain from America. And finished goods shipped out to America. Finished goods are more valuable than raw materials. So the Americans had to make up for this balance of trade in bullion. Resulting in a net inflow of bullion into the mother country. Very simple. As long as you can manufacture higher valued goods that other people want to buy.

And this is the problem they ran into with the Chinese. For though the British wanted those Chinese spices, silk and porcelain the Chinese didn’t want anything the British manufactured. Which meant Britain had to pay for those luxuries with bullion. Including all that Chinese tea they craved. Which resulted in a net outflow of bullion to the Chinese. The British fixed this problem by finding the one thing that the Chinese people wanted. Indian opium. Grown in Bengal. Of course, this turned a lot of Chinese into opium addicts. The addiction problem was so bad that the Chinese banned opium. But the British were able to smuggle it in. They sold so much of it that they used the proceeds to buy their tea. Thus reversing the bullion flow.

Not the finest hour in the British Empire. The Chinese and the British would go on to fight a couple of wars over this opium trade. The Opium Wars. Which the British did all right in. Even gaining Hong Kong in the bargain. They didn’t build any long-lasting love with the Chinese people. But Hong Kong turned out pretty nice under the British. Especially after they abandoned their protectionist mercantile policies and adopted free trade. Which made the British the lone superpower for about a century as they modernized the world by leading the way in the Industrial Revolution. And the Chinese in Hong Kong were very happy indeed to be there when the communists took over the mainland. And caused a famine or two. For they lived comfortably. In a state founded on mercantilism. That achieved its greatest prosperity during the free trade of capitalism that followed Britain’s mercantile ways.